PAYE vs Umbrella
vs Ltd Company

This calculator converts your contract day rate into annual revenue, then models three different ways of receiving that income. PAYE treats the full amount as employed salary — your client (or agency) pays employer NI on top, and you pay income tax plus employee NI on the gross. Umbrella works the same way as PAYE but deducts a weekly margin first (typically £20-30/week). Ltd company pays you a small salary at the Personal Allowance, pays corporation tax on remaining profit, then distributes the rest as dividends.

The reason a ltd company usually wins is the rate gap. PAYE salary attracts 20% income tax, 8% employee NI and 15% employer NI. Dividends attract 19% corporation tax plus just 8.75% dividend tax — and no National Insurance at all. At a £450/day rate working 46 weeks, a ltd company director typically takes home £7,000-10,000 more per year than the umbrella equivalent.

The calculator uses the £12,570 Personal Allowance as the default director salary, which is the most common tax-efficient choice. It accounts for the £5,000 employer NI secondary threshold, corporation tax at 19% on profits under £50,000 (with marginal relief up to £250,000), and the £500 dividend tax-free allowance. Allowable expenses (accountancy fees, travel, equipment) are deducted before corporation tax in the ltd scenario.

PAYE (permanent). Simplest option — your client employs you directly. You get employment rights (holiday pay, sick pay, pension auto-enrolment, redundancy protection) but your take-home is the lowest because the full income is subject to income tax, employee NI and employer NI. Best suited for long-term roles where employment rights matter more than tax efficiency.

Umbrella company. The middle ground. An umbrella employs you and handles payroll, invoicing and HMRC compliance. You get payslips and some employment rights. The trade-off is a weekly margin (£20-30) plus the same PAYE tax treatment as permanent employment. Umbrella is ideal for short contracts, inside-IR35 roles, or contractors who want zero admin. Use our salary calculator to model specific umbrella scenarios.

Limited company. Most tax-efficient for outside-IR35 contracts. You run your own company, invoice clients directly, pay yourself a low salary and take the rest as dividends. Requires an accountant (£100-150/month), annual accounts filing and self-assessment. The admin is the cost of keeping significantly more of your earnings. Use our dividend vs salary calculator to fine-tune the optimal salary/dividend split.

IR35 changes everything. If your contract is inside IR35, you must be taxed at source as an employee — making umbrella and PAYE effectively equivalent. The ltd company advantage only applies to outside-IR35 engagements where you genuinely control how, when and where you work. Our self-employed tax calculator can help model sole trader as a fourth alternative.